The trading exit is not what you want but rather what it should be

I would like to focus on this savvy reader’s observation: “I’ve sometimes used the standard of what I WANT the market to do. (how ridiculous is that!)”

Well…. from my seat it is not too ridiculous at all. I have been guilty of this. I have seen profitable traders guilty of this. I have seen many experienced traders particularly guilty of this. It is a common trading mistake.

So the good news is you are in good company making this trading error.

But the proper exit is not what you want, but rather what the exit should be.

For me, I make this mistake by wanting a stock to trade to my target and not being open-minded to other exits. This is common among experienced traders. We can often get wrapped up in not “overtrading” the trade. We often get wrapped up in “holding for the real move”. But this is really just trader code for being closed-minded to other exits that are more realistic. This is just trader not doing the work to plan for a more nuanced and better risk/reward exit.

Dr. Steenbarger has written recently about traders needing to set realistic targets. Many traders fail to do this. But this is an example of what that trader is doing above. You want the stock or market or product to trade to your target and only your target. You are unwilling to do the work to plan for other exits. You do not have the skill yet to plan for more realistic targets. Or you are just plain out of tune with your stock/market/product.

Good active trading is setting the standard of observing how the market/stock/product is behaving and then finding a way to participate that offers a good risk/reward. And then, and here is our expanded thought from this post, we must listen to the market/stock/product to find the realistic and best exit.

It is not how we want to exit. It is how the market/stock/product is behaving that decides our exit.